Mexico private sector eyes more NAFTA content in future products

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MEXICO CITY (Reuters) - A modernization of the NAFTA trade deal should protect existing industrial supply chains in North America, but could seek to source more work for future products from the member states to help create jobs, a top Mexican negotiator in the process said.

The government of U.S. President Donald Trump on Thursday triggered the process to start renegotiating the North American Free Trade Agreement (NAFTA) between the United States, Canada and Mexico, which could usher in formal talks by mid-August.

Trump has threatened to jettison the 23-year-old accord if he cannot rework it in favor of the United States, arguing it has gutted U.S. manufacturing by outsourcing jobs to Mexico.

NAFTA's supporters say the integration of lower-cost Mexico into production chains has safeguarded employment by enabling North America to compete better with Asian and European rivals.

Mexican business leaders say toughening rules that stipulate a certain amount of content must be sourced from North America to qualify for NAFTA certification could be one way of allaying U.S. fears, and pave the way for an agreement on the revamp.

Offering insight into how Mexico may seek to broker a deal, Moises Kalach, a linchpin of the country's private sector defense of NAFTA, said U.S. business leaders and government officials were increasingly persuaded that existing supply chains should not be disrupted - but that future production lines could be tailored to provide more work for North America.

"Obviously, innovation and technology have been changing the way and even form of how products are made, and there's an opportunity to have certain products and innovations made with a lot more regional integration, without doing damage to current lines of production," Kalach, who heads the international negotiating team of Mexico's Consejo Coordinador Empresarial business lobby, said by phone from Washington.

"This is part of the proposal that we want to put on the table, that we want to push," Kalach added, speaking after U.S. Trade Representative Robert Lighthizer had kicked off a 90-day consultation process with Congress and others over NAFTA.

Elaborating, Kalach said new products and materials in industries like carmaking and electrodomestic goods - sectors where Mexico runs a sizeable trade surplus with the United States - could be made with higher NAFTA content in the future.

Trump argues Mexico's surplus with the United States proves that the deal has hurt U.S. industry. Supporters of NAFTA say U.S. consumer demand has fueled the U.S. deficit and point out that the Mexican surplus has fallen since peaking a decade ago.

The deal underpins more than $1 trillion of trilateral trade.

U.S. Trade Representative Lighthizer said in Washington that NAFTA had been successful for U.S. agriculture, investment services and the energy sector, but not manufacturing.

Kalach said after Thursday's announcements it was still unclear exactly what the United States would seek in the renegotiation.

Thomas Donohue, head of the U.S. Chamber of Commerce, said in a statement on Thursday that the NAFTA renegotiation should do "no harm", and urged leaders to move quickly to avoid crimping investment and overly politicizing the talks.